Thu 27 Sep 2007, 12:44 GMT

By Shapi Shacinda

LUSAKA (Reuters) – The International Monetary Fund (IMF) has backed Zambia’s plans to raise mineral royalty to 3.0 percent from 0.6 percent and urged the government to limit its external commercial borrowing, a senior Fund official said.

The IMF, which concluded its fifth review of Zambia’s economic performance on Wednesday under the poverty reduction growth facility (PRGF), a three-year lending programme, said it was satisfied with macroeconomic performance.

“The IMF mission supports the authorities’ efforts to obtain greater revenue from the mining sector through the renegotiation of the fiscal terms of existing development agreements,” Francesco Caramazza, IMF mission chief for Zambia said in a statement released late on Wednesday.

“In this regard, efforts should be bolstered to increase revenue, through both tax policy measures and improved administration, shift spending to high priority areas, and raise the efficiency of public expenditure,” Caramazza said.

Zambia plans to raise corporate tax for the foreign copper mines to 35 percent from the current 30 percent while other taxes such as land rates could also be increased.

Finance Minister Ng’andu Magande said in August that Zambia would engage foreign consultants to help it renegotiate mining development agreements.

The Treasury awarded concessions on taxes to foreign mining firms after a near collapse of the vast copper mines in the early part of this decade.

Copper mining is Zambia’s economic lifeblood and remains a major employer in the country of 11.5 million people, where analysts say IMF-driven economic programmes have largely been successful.

“Recourse to external borrowing on commercial terms should be limited and only be made in the context of a sound debt management strategy and only for projects that are clearly economically viable,” Caramazza said.

Caramazza said Zambia’s fiscal management had been significantly strengthened, which, along with prudent monetary policy and the appreciation of the exchange rate, has caused inflation to fall sharply.

“The Zambian economy has performed well in recent years, reflecting strengthened macroeconomic policies, a marked improvement in the external environment, and extensive debt relief,” he added.

Caramazza said debt relief under the Heavily Indebted Poor Country (HIPC) Initiative and the Multilateral Debt Relief Initiative (MDRI) as well as the revival of the mining sector have strengthened Zambia’s external position and bolstered investor confidence.

“The mission projects GDP growth this year to exceed 6 percent and to remain buoyant over the medium term,” Caramazza said, reiterating the Fund’s earlier projection.

Fiscal breathing room created by debt cancellation in 2006 should allow Zambia to focus on spending more in education, health care, poverty reduction and infrastructure development, the Fund added.

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